OCTOBER ENTITLEMENT TRADING UPDATE – HOSTING & LEASING – PRE 21ST ENTITLEMENT TRANSFERS – HOW WILL CAPIS WORK? – 2015 DUAL USE UPDATE – AUTUMN RPA INSPECTIONS – MILK QUOTA – ACTIVE FARMER TEST
ENTITLEMENT TRADING UPDATE – NON-SDA
As we move closer to the 21st October transfer deadline, now only 11 days away, trade for Non-SDA entitlements is strong, particularly for this time of year. We are seeing lots of movement for smaller blocks of entitlements and, as the deadline looms, some larger purchasers are also coming to the market, perhaps now to regularise their situation, without having the risk of teething problems when transfers move online in the New Year. Make no mistake however, there remains a substantial surplus on the market and there is no doubt that some vendors will be left with their entitlements until the New Year.
Despite this short period left there are still bargains to be had and it remains a buyers’ market at this stage. Larger blocks of Non-SDA are receiving offers at £125 to £130 per hectare, with smaller lots achieving slightly more, around £135/ha. The market for smaller blocks has been bolstered by those buyers looking for a small number of entitlements to take them over the five hectare limit, providing they have the land available of course.
It will be interesting to see how the market after the 21st develops, particularly in respect to vendors with blocks under five hectares and whether they will take the time to register on the CAPIS, simply to sell a couple of entitlements.
The market for more sizeable blocks tends to receive a ‘kick start’ in February time, when claimants and their agents begin preparing SPS claims prior to the 15th May. There is speculation that the smaller blocks disappear into the ether when transfers move online, and we will have to wait and see whether this will have a significant impact on supply. If so, and demand is stronger than supply as a result, we could see an upturn in prices in the New Year. Certainly with entitlements purchased today achieving a return on investment of approximately 42% in 14 months, which can then be used until 2019, it makes sense to buy now rather than risking an upturn in prices in the New Year.
ENTITLEMENT TRADING UPDATE – SDA & MOORLAND
There has been comparatively less supply of SDA entitlements and prices, between £160 and £180 per unit, reflect this. Demand has been even throughout the trading window with more purchasers entering the market as we near the deadline. Trade in Moorland entitlements has remained level and prices are unmoved at £60 per unit.
ENTITLEMENT HOSTING & LEASING
Those who have previously hosted entitlements should consider whether it would be prudent to have them returned prior to the 21st October deadline, with a view to leasing them out next year. This is particularly relevant for those who may have trouble with the new active farmer test, whatever form this will eventually take. If transferring before the 21st, neither party in an entitlement transfer is subject to the active farmer test, however from January we understand that entitlement transferees will be. This may not seem relevant for many, as it will surely be imposed upon claimants when claims are submitted. However for those Entitlement Owners whose entitlements are currently held on their host’s SBI number, and who have concerns about meeting the (as yet unspecified) requirements to be classified as an active farmer, it may be advisable to transfer entitlements back before the 21st and subsequently lease them out under the BPS. At this stage it is unclear whether leased entitlements will be subject to the active farmer test, however it could be considered unreasonable for a non-farming landlord, with let farms, to be unable to hold entitlements that they can lease out to their tenants for the duration of a tenancy. This argument suggests it would be impractical for leased entitlements to be subject to the active farmer test, particularly when reverting to a landlord for example. Although it is unclear at this stage which route DEFRA and the RPA will take on this issue, it is something that should be considered now for non-farming landlords and entitlement owners with hosted entitlements.
TRANSFERS BEFORE 21ST OCTOBER 2014
If submitting RLE1 forms to transfer entitlements before the 21st one should take care to ensure the effective date of transfer is on or before the 3rd December 2014, otherwise there is a risk that the transfer will fail. This is in order to allow the RPA time to process these transfers before the BPS comes into being.
This deadline does not apply for boundary changes using RLE1s and these can still be submitted after the 21st. It is understood that with the launch of the online system one will then be able to make changes to one’s land holding online.
HOW WILL THE ENGLISH CAP INFORMATION SERVICE (CAPIS) WORK?
Initially claimants (as individuals not businesses) and agents will need to register through gov.co.uk for a Unique Reference Number, similar to previous registration via the government gateway. This registration will also have other purposes; for example HMRC applications. The old government gateway will become a thing of the past, and once registered one will be able to connect to CAPIS, the new RPA online.
Once on CAPIS, claimants will be able to select an agent they wish to be empowered on their behalf, and they can authorise their agent(s) to differing levels of authorisation, similar to on existing SP9s. CAPIS is essentially an online system for individuals rather than businesses, so once registered you will then have to link all your businesses (and their associated SBI numbers) to your URN.
Agents will also complete the initial registration as individuals and then identify which firm they are associated with. It is understood that claimants can either authorise either their agent as a firm, or as an individual.
Once through to CAPIS the claimant will need to specify which businesses they are associated with. This raises queries as to any further information that could be required if one has more than one farming business and therefore more than one SBI number. It will be interesting to see the impact of this. Currently the RPA can request further information about a claimant’s relationship with different businesses through the IACS 26 & 27 forms. The RPA then make a decision as to whether they consider the businesses as one. This can raise issues if different schemes are claimed for different businesses, and although if claiming SPS one’s land is likely to be included within the same claim, if claiming for multiple RDP schemes under separate businesses there could be implications if financial limits on claims are breached when assessed collectively.
Once logged into CAPIS claimants should be able to view their land parcels and previous land use, rather than having to input parcel data from scratch. The land use codes we have previously used to are to become a thing of the past and although historic PP1 and TG1 designations will be taken into account by the RPA when determining one’s arable land (which includes temporary grassland under the BPS) and permanent pasture, there should be a chance to make amendments/corrections via CAPIS. The new land use codes are likely to be more akin with the current Welsh system, where there are individual crop codes and ineligible features are more precisely defined.
Entitlement transfers are likely to be dealt with by inputting the SBIs of transferees and selecting from drop down boxes whether entitlements are to be permanently transferred or leased for a particular period of time, after which one presumes they will automatically revert to the lessor.
From a first glance, and taking account of the fact that it is a work in progress, the CAPIS system appears well designed, user friendly and fairly straightforward to someone well versed in using the current paper forms. Only time will tell as to what, if any, teething issues we may encounter, and of course the most pressing issue is its user friendliness for those with limited experience of computer technology. There are also concerns for those rural farming businesses without reliable internet access or who are not confident working on computers, however the RPA are setting up regional “Digital Assist” centres for those who have never submitted their claim online before.
DUAL USE UPDATE
It has been confirmed that Dual Use will be allowed to continue in England in 2015 for existing Environmental Stewardship agreements in England. The use of the word existing is interesting as it implies that there may be changes on the horizon, perhaps under NELMS. It will still be vital to ensure that there are written records of this arrangement and that all parties are obliged to comply with the requirements of the others’ scheme obligations.
Those with FBTs (or AHAs) are minded to ensure that it should be the tenant who includes their rented land in their greening requirements, not the landlord.
AUTUMN RPA INSPECTIONS
The RPA have announced that, starting this autumn RPA inspectors will be issued with hand held GPS, accurate to half a meter. It will be interesting to see the impact this will have on eligible area penalties, and will presumably ‘come into its own’ when mapping for greening requirements next year.
MILK QUOTA
The production figures for September were issued by the RPA on 7th October, and they show that UK production is continuing to increase compared to last year, possibly due to dairy farmers wishing to keep their milk cheque up at a time when the price is dropping. The provisional figures for September are 1,141.6 million litres (compared to 1,062.7 million litres in September 2013), cumulatively bringing the UK production to 7,397.7 million litres compared to 6,845.5 million litres at the same time last year. Dairy Co’s website has analysed the last two weeks of figures and states that “UK Daily deliveries for the two weeks ending 27/09/2014 averaged 38.6m litres/day, 3.4m litres/day (9.6%) higher than the same period last year. Daily deliveries for this period were 4.3m (12.4%) higher compared with the 3-year average”. Despite these strong figures however, cumulatively the UK is still (just) producing less than it did by September in 2003/4 (the last time we hit quota), and of course the UK National Quota has increased from 14,029.1 million litres in 2003/4 to 15,293 million litres in 2014/15.
These strong production figures are probably the reason we are receiving more enquiries about buying from those producers who have been milking without any quota, or whose milk purchasers (usually the smaller ones) are feeling exposed and would prefer their producers ensure they have cover in this final year. There are also those dairy farmers who feel it wise to top up their quota to match their production now, simply as insurance against production continuing to rise, and the possibility of the quota price increasing again in the new year as a result. The prices therefore being offered now have risen from the 0.1 and 0.15ppl level up to 0.25ppl for an average butterfat. However we are now beginning to experience a shortage in supply as many dairy farmers who have finished milking this year, or who have excess quota, or who have parked it with neighbours, seem loathe to part with it at these lower prices, and feel it wiser to hang on to it until the end, unless the price rises to more profitable levels. It seems unlikely that there will be any delay in the end of milk quotas (it would require new EU legislation which usually takes years), or that if they do decide to reinstate milk quota in the future that they would simply “reactivate” quota held in 2015, however no-one can be totally sure such scenarios will not come to pass.
There is however a good supply of leased milk quota available at present at 0.25ppl, as at present most productions wanting to top their quota wish to purchase rather than lease. Time will tell if production continues its upwards trend, and whether after Christmas leasing becomes more attractive to those without enough quota to cover their production.
If you have surplus clean quota and would be interested in selling, please contact Julia Clark on 01392 823935 to discuss your situation.
SUMMARY
Overall these are interesting times, both for those currently obtaining entitlements which should have an almost unparalleled rate of return in terms of current investment opportunities, and those establishing the most efficient means of complying with new BPS greening requirements. Please be aware that although the above comments are to the best of our knowledge accurate, decision are still being made by DEFRA and the RPA, and the reform is effectively ongoing. This means that changes could still occur to the above information and you should not necessarily rely on the above.
ACTIVE FARMER TEST
One aspect of the Basic Payment Scheme (BPS) rules which still remains up in the air is the criteria that one needs to meet in order to be deemed an “active farmer.” This is significant as those who are not deemed to be “active farmers” will be unable to claim the Basic Payment or receive BPS entitlements.
What we do know is that in order to be deemed to be an “farmer,” the prospective BPS claimant must carry out “agricultural activity.” This is defined in the EU regulations as either:
1. production, rearing or growing of agricultural products, including harvesting, milking, breeding animals, and keeping animals for farming purposes, or
2. maintaining an agricultural area in a state which makes it suitable for grazing or cultivation without preparatory action going beyond usual agricultural methods and machineries, based on criteria established by Member States on the basis of a framework established by the Commission, or
3. carrying out a minimum activity, defined by Member States, on agricultural areas naturally kept in a state suitable for grazing or cultivation.
Defra are yet to set out the criteria in respect to part 2 above. The Welsh Government however has confirmed that a claimant must “control non-native invasive weeds and scrub, ensure land has stock proof boundaries and a water source for livestock.”
In the latest CAP handbook Defra state that they have not identified any “naturally kept” land in England. Therefore part 3 above will not apply in England.
The next step for a prospective BPS claimant is to satisfy the “active farmer” test. Defra’s CAP handbook published in April this year states “you might not be classed as an active farmer if your business operates any railway services, airports, waterworks, real estate services or permanent sport and recreational grounds.”
This “negative list” test will not apply to those who received Direct Payments of €5,000 or less in the preceding year.
Defra have not yet published any further detail in respect to the negative list activities. The main areas of concern for farmers are likely to be in respect to the operation of real estate services and permanent sport and recreation grounds.
The Welsh Government has confirmed that operators of real estate services will include “property developers, real estate agencies and persons managing real estate on a fee or contract basis” and that “renting [out] accommodation facilities on a farm should not be considered as operating a real estate service.”
They have also confirmed that operators of permanent sport and recreational grounds will include “specialised operators of permanently existing areas of land with permanent fixtures and/or permanent artificial structures for spectators that are being used for a purpose of sport and recreational activities” and that “renting out a horse stable is not a sufficient condition for being considered as operating a permanent sport and recreational ground.”
It is thought that Defra are likely to take a similar approach.
Even if a BPS claimant is operating a “negative list” activity, they can still re-qualify as an “active farmer” if one of the following applies:
1. The annual amount of direct payments the BPS claimant was entitled to is at least 5 per cent of their receipts from non-agricultural activity in the most recent fiscal year.
2. The total receipts from agricultural activities in the most recent fiscal year are a certain fraction of the total receipts obtained by the BPS claimant in the most recent fiscal year. Defra is yet to confirm what the fraction will be. In Wales it will be one third.
3. The principle business or company objects (objectives) consist of exercising an agricultural activity.
The Welsh Government has confirmed that in the case of the first two tests, they will accept a letter from a Chartered Accountant confirming that they have examined the accounts and that the relevant test is met. In the case of the third test they will require either documents registered with Companies House or a document from an accountant stating the principle business activity is agriculture.
If you would like to discuss any of the above issues, or to get the most up to date information, please contact Ashley Taylor or Jessica Bradley for Non-SDA entitlements, Jessica Bradley for SDA & Moorland, and Julia Clark for milk quota.
TOWNSEND CHARTERED SURVEYORS
VAT is payable on Entitlements and Milk Quota traded without land, unless the seller is non-VAT registered. Unless otherwise stated please assume that Entitlements and Milk Quota are offered for sale without land and VAT will be due on the price agreed. Naked Acre rental costs are not subject to VAT. The Entitlements, Milk Quota, Naked Acres or Hosting arrangements mentioned above are offered subject to contract.
VAT is payable on Entitlements and Milk Quota traded without land, unless the seller is non-VAT registered. Unless otherwise stated please assume that Entitlements and Milk Quota are offered for sale without land and VAT will be due on the price agreed. Naked Acre rental costs are not subject to VAT. The Entitlements, Milk Quota, Naked Acres or Hosting arrangements mentioned above are offered subject to contract.
Please note we also only act on a subject to contract basis when buying Entitlements, Milk Quota, renting Naked Acres or arranging Hosting agreements for our clients. We do not enter into oral contracts on behalf of any of our clients. Entitlements, Milk Quota, Naked Acres mentioned may include lots offered by other agents where prices quoted would include an introductory commission payable to us.
The 2013 SPS payment rate for Flat Rate was €323.97 for non-SDA; SDA – €260.29 and SDA Moorland – €45.47 pre modulation/inter pillar transfers, financial discipline or other adjustment. In 2014 the EU budgetary framework (Multiannual Financial Framework) is changing. This means that payments will be calculated in a different way. There will be no modulation, the new Framework will instead transfer funds between the two CAP Pillars through ‘inter pillar transfers’ of 12%. This movement of funds will be applied to CAP funds as a whole, not at individual payment level, therefore it will be difficult to calculate the level of 2014 payments until they are confirmed in November/December 2014. Therefore until the 2014 payment rate is set any predicted payments quoted are based on 2013 rates and the 2014 exchange rate of £0.7773, which has now been confirmed. In 2014 the implementation of the Financial Discipline has been proposed at a reduction of 1.301951%, however this can be amended until December.
The minimum claim size will increase from one hectare to five hectares from 2015.
Entitlement transferees in 2015 will be subject to an Active Farmer Test, as will claimants. Therefore one should consider their position when arranging entitlement transfers or leasing or hosting entitlements.
Townsend Chartered Surveyors cannot be held responsible for any quotes, prices, rates or advice given in light of the impending Common Agricultural Policy reform, which is subject to change, approval from the European Parliament and Commission and the Implementing Regulations.
Unless specifically instructed in writing we are unable to provide advice in respect to the ongoing reform of the Common Agricultural Policy of the European Union, especially how it may affect a particular vendor’s or purchaser’s future eligibility for the Basic Payment Scheme. Any such comments or statements made by Townsend Chartered Surveyors verbally during the process of buying or selling entitlements, arranging naked acre letting/hosting agreements or otherwise cannot be relied upon unless such advice is provided in writing following receipt of written instructions for Townsend Chartered Surveyors to provide such advice. Any such oral comments or statements do not form part of entitlement or naked acre agency contracts.
